Recently there were reports that Fannie Mae and Freddie Mac were being prompted to join the FHA’s short refinance program as these servicers hold a majority of mortgages across the nation and could provide underwater homeowners with the opportunity to not only refinance their home loan to a more affordable rate but also could offer principal forgiveness options to those with a negative equity situation. Yet, reports also indicated that Fannie Mae and Freddie Mac were reluctant to join the FHA initiative despite the fact that many felt this could bring other mortgage servicers into the program which again could offer homeowners the option to find more affordability in their underwater mortgage.
Yet, there are those who seem to be against servicers participating in the program as it could create a great deal of loss for mortgage servicers and investors, among others. The FHA short refinance program, while complex in its requirements, essentially has asked that financial institutions with homeowners who are into negative equity situation but current on their home loan payment reduce a percentage of a homeowner’s mortgage principal and then turn over the home loan to the FHA where more affordability may be gained.
This could be quite beneficial for homeowners who owe more on their homes than their home is worth but are seeking a way to lower their monthly mortgage payment, however the losses that servicers may take seems to be one of the main reasons that financial institutions like Fannie Mae and Freddie Mac, along with other major banks, are refusing to take part in this FHA initiative.
However, there are those who feel the FHA short refinance program may soon be used by more servicers and could offer more homeowners the option of not only finding principal reduction opportunities but underwater mortgage refinancing as well. While homeowners with Fannie Mae and Freddie Mac may be able to participate in the Making Home Affordable Home Affordable Refinancing Program, more officials have been seeking additional opportunities for underwater mortgage homeowners to find the affordability they need since many have been unable to take advantage of low mortgage interest rates and options which could make their home loan more affordable.
There has also been a call for many financial institutions who service mortgages to reduce principles on home loans to amounts which are equal to the current market values, but this obviously has created both positive and negative reactions from many in the mortgage industry. Understandably, homeowners feel that because there have been such substantial drops in property values that financial institutions who service their mortgages should offer principal reductions since home prices were likely inflated when they purchased their home.
Yet, there are those who feel that homeowners are not guaranteed that their home value will remain constant or increase over the years and a loss of property value is simply a risk that homebuyers must take if they wish to enter the housing market. Understandably though, homeowners who have seen a substantial drop in their home loan value have grown very frustrated as many feel that selling their home at anything but a loss may not be an option in the foreseeable future and, for those who are having financial troubles, foreclosure may be in the future since they cannot refinance to a more affordable level.
However, homeowners who are strictly concerned with affordability do have options from programs like the Making Home Affordable modification plan or other assistance plans which are available directly from servicers. Yet, when it comes to homeowners who are current on their underwater home loan, opportunities for principal forgiveness and refinancing through the FHA short refinance program may not be an option at the present time as it seems lenders will remain hesitant to use this principle forgiveness/refinancing opportunities on homes with negative equity.